As the eurozone struggles with weak growth and the threat of deflation, left-leaning economist and Nobel laureate Joseph Stiglitz is insisting the currency bloc is doomed without radical changes.
In a new book he claims the European Central Bank cannot save it, because the way the euro area was conceived and set up was political rather than economic, which makes it “unsustainable”.
He told Euronews: “I think that there are limits to what a central bank can do. So the problem that I’ve said is not so much policy, even with the best of policies – and the policies have not been the best – but even with the best of policies it would have been virtually impossible to make the eurozone work, even with a genius as the policy maker.”
The head of the European Central Bank Mario Draghi has repeatedly said that the region’s governments have to reform their economies for there to be a return to better growth.
Stiglitz doesn’t agree with Draghi: “His diagnosis is really trying to shift the blame to the victims. When he says the governments, the question is which governments? If Germany were to inflate its economy, to allow its prices to rise, rather than putting the burden of adjustment on countries like Spain and Portugal, that would help a lot. But the fundamental issue is the structure of the eurozone. Changing the mandate of the European Central Bank and creating these other institutions. Individual countries cannot solve the problem alone.”
The additional institutions Stiglitz favours include a full banking union, euro bonds and a solidarity fund to help crisis hit countries.
Without reforms like that he believes the single currency system will fall apart – messily.